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HealthSouth stock falls ill
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September 10, 1999: 12:51 p.m. ET
Profit warning, plans to shelve spin-off, take charge, sends price tumbling
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NEW YORK (CNNfn) - Investors fled shares of HealthSouth Corp. in heavy trading early Friday after the company warned it would take hundreds of millions in charges for reorganization, would shelve its spin-off plans indefinitely and would see lower than expected margins in the quarter
The statement came after the stock closed Thursday at 7-7/8, already near a 52-week low. It opened Friday 4-3/4, and while it climbed somewhat from there, it was still trading in the $5 a share range Friday morning, as analysts who follows the stock rush to cut their ratings.
HealthSouth (HRC), the nation's largest provider of outpatient surgery and rehabilitation centers, had planned to spin off its inpatient facilities.
"While there may still come a time when it is appropriate to separate these two businesses so that they can grow on their own, we no longer believe that is the best course right now," said the statement from Richard Scrushy, chairman and chief executive of the Birmingham, Ala., company.
The company's statement also said it expects to take a charge of between $250 million and $300 million by the end of 1999 to deal with restructuring plans. It also said the proposed spin-off had incurred significant costs for the company.
It warned labor costs are expected to rise because it needs to resume merit raises it suspended a year ago in order to retain employees in the current job market. And it said its operating margins in the current quarter are running between 27 percent to 29 percent, rather than 30-plus-percent range it has seen historically. It pointed to ongoing issues with managed care and government reimbursement policies as a major cause of the problem.
Among the seven analysts who lowered their ratings on the stock Friday were those at Banc of America, Merrill Lynch, Credit Suisse First Boston and Bear Stearns.
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HealthSouth Corp.
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